Six Feet Under is a TV show, not a company administration, but
investors are confused – as our resident accounting juggler, Blair Payton
Six Feet Under is a cult TV show about an activity that’s always
with us. Death as a plot line is a hard thing to carry week after week,
but Six Feet does, very successfully, and at times very amusingly. It’s
a bit like that in the corporate world.
Corporate failure consumes some of the biggest, to the smallest
concerns. The skills of a good administrator, receiver or a brutally
honest liquidator are a necessary part of business life.
They might not be as dysfunctional as the family in Six Feet Under,
but it always helps to have a big firm behind them to add some clout.
And so it is in the world of corporate recovery. The undertakers of
business life: the receivers, administrators and liquidators.
Independence is vital in these situations as the recovery experts are
supposed to act for creditors, not debtors, shareholders or the
management of the failed groups. So how independent are they these days?
Sounds like a silly question but the recent collapse of small mining
group, Gympie Gold and its administration by KPMG has caused an
investor friend of Crikey’s to pose the question following some
dissatisfaction with the performance of the administrators and ASIC.
The administrators of Gympie are messrs J.D. Hayes and M.C. Smith of
KPMG. Crikey’s friend has been unhappy with the way and the speed in
which they have been communicating to creditors of Gympie.
After contacting ASIC and some difficulty with its website,
our friend managed to make a complaint, asking whether the administrators had
given creditors adequate notice of the first meeting earlier this year.
ASIC’s Jeff Lucy, the then acting chairman of ASIC wrote back and in
his letter said “Please note that Messrs Hayes and Smith were appointed
to GYM ( Gympie) as Administrators in their own capacity, as registered
liquidators, and not as representatives of KPMG. Only individuals can
be appointed as administrators of a company under administration”.
Fine said Crikey’s mate, but Mr Lucy seems to have ignored a number of things that seemingly undermine his case.
– The correspondence from Messrs Hayes and Smith came on KPMG letterhead,
with the logo plastered on every page. Furthermore the bottom of the
cover sheet had “KPMG Corporate Recovery” printed on it.
– The report to creditors dated May 26 is signed” M C Smith Administrator, KPMG”
– The return address for proxies is KPMG, of the same address, Level 9,
10 Shelley Street, Sydney. And the scale of fees and charges “is
based on actual time costs as standard KPMG hourly rates”.
Hmmm, so Jeff Lucy says that administrators are individuals and “not representatives of KPMG”
Might be the strictly legal truth, but to a ‘reasonable person or investor’ Jeff baby, you could have fooled Crikey.
Bet you their timesheets have KPMG logos on them and get inputted into
a KPMG computer and the bills go out with a KPMG logo on them and the
money is sent to a KPMG bank account.
Unlike Mr Lucy however, KPMG certainly sees the potential for confusion
and concern. It’s moving to separate the corporate undertaking business
from all its other operations.
Not because of Crikey’ friends complaints about little Gympie Gold, but
a more weightier reason. Money, the millions and millions of dollars in
audit fees it gets every year from auditing banks and other financial
There’s been some concern, especially among US regulators about the
independence of KPMG’s audit role, a concern that became public during
the problems at the NAB earlier this year.
KPMG has lost the NAB audit, and part of the reason was the revelation
that the US SEC was looking at the co-mingling of KPMG executives with
NAB managers in periods of secondment to the bank.
The US SEC felt that was a potential breach ( or could be an actual
breach, the final decision is not known) of the independence of KPMG’s
audit function as applied to the NAB.
So it has moved to clear that up, perceiving that the biggest area of
future concern was in company liquidations, administrations and
receiverships where partners and staff in this area might be used in
appointments by the NAB, or other audit clients.
So in Australia McGrath Nicol and Partners has been established
separate to the KPMG corporate structure.It starts work on July 1.
That’s based on the work of Tony McGrath, the HIH and Pan Pharmaceuticals liquidator.
Other accounting firms say they won’t be following KPMG down the
divorce route, but Tony McGrath told Alan Kohler on the ABC’s Inside
Business earlier this month that it was because KPMG had such a
dominant position in bank audit market and got a lot of business in its
corporate recovery business from those same banks as major creditors.
Crikey understand that McGrath and Nicol will base its fees and charges on the KPMG list.
While ASIC sees them as being independent, to Crikey it looks like a
nice legal fiction when the reality is that the administrators of
Gympie Gold depend heavily on KPMG for the sinews of remaining in
business, the fee scales, offices and support services. The same would
apply to other accounting firms, of all sizes.
Crikey understands the strict legalities, but the realities are very
much different. Its an area ASIC should either do more to educate
investors, or change the law to reflect the realities of the modern
corporate recovery business.